Background

Mr Orton brought a claim against Barclays for around £2,750 arising from PPI commission and alleged unfairness under the Consumer Credit Act 1974. The claim was allocated to the Small Claims Track, where the general rule is that each party bears its own costs.

Barclays repeatedly invited Mr Orton to discontinue, warning that it would seek costs if he continued. Mr Orton eventually discontinued 12 days before trial, after reviewing Barclays’ evidence and deciding that continuing would not be commercially worthwhile because the cost of counsel would substantially reduce any potential recovery.

The District Judge found that Mr Orton had behaved unreasonably and ordered him to pay Barclays £2,132.88 in costs. The Circuit Judge upheld that decision. Mr Orton appealed to the Court of Appeal.

The Issues

1. When will conduct amount to “unreasonable behaviour” under CPR 27.14(2)(g)?
2. Was Mr Orton’s late discontinuance and failure to accept Barclays’ invitation to discontinue unreasonable?
3. Was the Circuit Judge correct to create a four-stage test for determining unreasonable behaviour?

Held

The Court of Appeal allowed the appeal.

The starting point must be that the Small Claims Track is costs neutral. Costs should therefore only be awarded under CPR 27.14(2)(g) where the conduct is clearly unreasonable.

The Court confirmed that:

• The burden of proving unreasonable behaviour is on the party seeking costs.
• The relevant question is whether the conduct “permits of a reasonable explanation”.
• Discontinuing a claim, or refusing an opponent’s offer, is not in itself unreasonable.
• The court must consider all the circumstances, including the costs-neutral nature of the Small Claims Track.
• The Court should avoid importing tests from other areas, particularly the Denton approach.

Mr Orton’s decision to discontinue for commercial reasons was capable of a reasonable explanation. Barclays’ correspondence was also not a genuine settlement offer; it was essentially an invitation to discontinue on a “drop hands” basis.

The Circuit Judge’s four-stage test was rejected as unnecessary and potentially misleading.

The costs order against Mr Orton was therefore set aside.

Comment

The case strongly protects the costs-neutrality of the Small Claims Track. A party should not be discouraged from bringing, defending, settling or discontinuing a small claim because of the risk of an unexpected costs order.

Importantly, a defendant cannot simply impose a short deadline for discontinuance and then argue that failure to comply is automatically unreasonable. The court must look at the overall circumstances and ask whether the conduct genuinely lacks a reasonable explanation.

The decision also shows that courts should be cautious about importing principles from other costs regimes. The Small Claims Track has its own distinctive purpose and rules, particularly because it is intended to be accessible to litigants who may have limited resources or legal representation.

See a copy of the judgment here:

https://caselaw.nationalarchives.gov.uk/ewca/civ/2026/1025

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